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Buy To Let investment portfolio’s have now become a very sophisticated product since our friends at HMRC introduced a number of changes to the way in which investment properties are treated when purchased, and in the manner in which rental income will be viewed in the future.
We are now seeing a number of Landlords with a portfolio looking to diversify by selling off properties held in their own name and purchasing via an SPV ( limited company ) and bringing in holiday let properties which are attracting a strong income stream. It is of course a matter of balancing the portfolio to give a good income and reduce risk. A number of lenders have seen the changes in the market and are welcoming mortgage business from the holiday let market using an SPV as the vehicle to purchase the property. This adds another string to the land lords bow with HMO, student let and now holiday let.
This has meant that portfolio landlords have had to look at the best way going forward to expand their portfolio’s, and whether they need to make any adjustments to ensure they are more tax efficient going forward.
Lenders are of course very keen to have experienced landlords as clients to keep the rented properties in safe hands. We have seen BTL mortgages in some cases, being agreed at 85% LTV, which has been rare in recent times.
The major change in the BTL Portfolio market is the way in which many lenders now stress the rental income, which does in some cases lower the overall loan to value of the portfolio, when the whole portfolio is stress tested on a new purchase or remortgage.
Fortunately, we still have lenders who have taken a more common-sense view and new purchases or remortgages are stress tested in their own right, which makes the whole process so much quicker and easier to get agreed by the underwriters.
We still need to see details of the portfolio, not only to make sure that the portfolio is funded correctly, but how the rental stress test is applied for new mortgages. This is the key to helping landlords go forward and to continue to thrive in this very competitive market.
As brokers who have over 56 years of experience in Financial Services and spend a great deal of our time in our research, as the market is in a constant state of change, with new lenders coming to the market bringing more competition and flexibility to criteria, which is very good news for clients.
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More About Investment Portfolios
With many changes in the buy to let portfolio market, investors now have to make a decision whether to buy properties in their own name or via a limited company to take advantage of the changes imposed by HMRC. The property market is still very buoyant but investors should be aware of the stress-test now being used buy lenders on most products. The effects of the changes would be that the mortgage repayment must be covered by 145% of the rental income assuming an interest rate of 5.5%. Currently some lenders are taking a more relaxed view when the client opts for a 5 year fixed rate product.
More about Investment Portfolios
Prior to the downturn in the property markets in 2007, many Investors preferred to keep their portfolio’s with one lender and to use the capital appreciation each year to enable them to gear up within the loan to value, without having to find any extra cash to put into the new purchase.
Unfortunately the downturn in the markets changed the dynamic’s of the plan, which saw most clients breaking up the portfolio, and remortgaging away to other lenders as they were in breach of the loan to value.
We are now just starting to see the return of Portfolio borrowing, with the property price boom in London, and the attractive investments within the magic circle of the M25 and certain Hotspots.
The main difference today from 2007 is that the niche lenders are not looking for exposure in excess of 20 properties, and most of the other lenders are comfortable with 5 or 10 properties. Lessons have been learned from the heady days prior to 2007, after which many lenders are still holding BTL portfolio’s and are waiting for the markets to return in order that they can dispose of them without causing panic in the market place.
Â Is it still a wise move to consider borrowing within the portfolio, yes but keep the portfolio small, 5 properties, which makes your life so much easier to take advantage of changes in the market, and to sell or buy at the right time. Also if lenders have a change of lending policy, you are only looking at changing part of your portfolio, rather than all of it. Reacting to changes in the property market is essential to enable you to grow with a spread of risk.
If you would like more information, please call Michael J Alexander on 03452 605506 or 07867 794837 email firstname.lastname@example.org